Litigation Finance for Employment Cases

When observers talk about growth areas for litigation funding, they often point to personal injury cases, where the proliferation of funding companies is making it easier for plaintiffs to find help in managing their litigation costs.  And, of course, litigation funding has long been used in high-stakes commercial litigation, where obtaining funding is a way for litigants to spread the risk associated with their lawsuits.  But litigation financing can be just as important in another area of substantive law that is often less noticed:  employment law.

Many employment disputes involve the enforceability of covenants not to compete, which are designed to prevent employees from taking a new job and then exploiting the trade secrets or other proprietary business information of their former employer.  By their nature, these agreements must balance three things: the employer’s legitimate interest in protecting its proprietary information, the employee’s right to find new opportunities, and the need to protect vigorous but fair competition between businesses, both for employees and for customers.  The delicacy of this balance and the stakes for the parties involved mean that these cases can be protracted battles that involve significant legal costs.

Most significantly, the thing that is really at stake in these cases is the right to compete.  The old employer is more concerned about protecting trade secrets than in winning damages.  And the employee and his or her new employer are more concerned with moving on to new opportunities.  For all of the parties involved, winning a damages award is often a subsidiary consideration.

In these situations, litigation financing makes sense for any of the parties.  When a party is more concerned with defending a principle than winning damages, it makes sense to pledge a portion of any damages award in return for funds that will make it possible to fully defend the principle at issue.

For employers, litigation financing can make sense in another way.  For a company with many employees, there may be many employment cases pending at any one time.  Some of the cases are defensive, such as employment discrimination claims, while others are offensive, such as claims to enforce covenants not to compete.  The company can leverage all of its cases by seeking financing for all of them and pledging a share of the prospective proceeds in the offensive ones.  Such an arrangement allows the company to use more of its revenues to fund its operations or growth instead of paying litigation costs.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, legal costs, employment law, covenants not to compete,

 Works Cited:

Gayle Cinquegrani, Litigation Financing Could Even Odds in Employment Lawsuits, Daily Labor Report (BNA) (Oct. 3, 2016) available at https://www.bna.com/litigation-financing-even-n57982077847/

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